My analysis on ETH/BTC through multiple cycles (risk on/off, inflation regimes, rising/falling interest rates) and vs other major asset classes for @MessariCrypto
To the riskiest growth stocks BTC averages about a 35% correlation over the last four years while ETH averages about a 30% correlation over the same time period. Notably, Ethereum has been exhibiting a much lower correlation to low/no revenue technology stocks more recently.
As cash flow has increased for ETH the last two years, correlation to the S&P and NASDAQ has increased. As most are aware the top 4 names in both are tech giants $aapl $msft $amzn $goog
What about BTC? Strangely enough it’s been tracking closer and closer to the large cap value index over time. The top names in the Russell 1000 value index are Berkshire Hathaway, J&J, JP Morgan, United Healthcare, P&G, Bank of America, and Exxon.
On Interest Rate Changes--> No surprises during rising or falling IR environments, they perform as expected but notably BTC/ETH are still inversely correlated to real yields
On Inflation--> While BTC and ETH haven’t experienced a high correlation to inflationary pressures in the past, both tokens have popped the minute strong CPI numbers have been released the last few months. They also have tracked inflation expectations very closely
On bear markets--> As expected for price action but notably builders keep building and downturns seem to be getting less severe and less protracted
Correlation between BTC/ETH remains high but I bet this continues to deteriorate as their different use cases cement themselves. We see shades of that already
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(1/11) Where are we in the current crypto cycle and where do we go from here?
In this thread I'll cover:
-Cycle timing
-Predictions for the next 18m
-Investor implications
TLDR: You aren't bullish enough.
Lets dive in🧵
(2/11) Current State
-This cycle effectively started in Q4 2023 with anticipation of the approval of BTC ETF in the US
- $15b of net new flows in the asset over the first six months of the year
-Thew ETH ETF announcement on May 23rd gave a strong price bump initially jumping over 30% in a handful of days, but recent weeks have seen the asset give back all of these gains.
- We had a large deleveraging event to end Q2 with almost $1B in assets liquidated over the course of the last weekend.
(3/11) Current State
-MVRV is a ratio of an asset's Market Cap versus its Realized Cap (Cost basis of supply)
-MVRV has been the most reliable indicator for under or oversold conditions for BTC
-With a huge amt of leverage taken out of the market, we see oversold conditions
-The ratio remains at 1.5.Historically, above 4 has been a clear sell signal, and below 1 a clear buy signal
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(2/6) Sizing the market. Potential AI benefits for all industries combined with strong funding leads to a massive expected impact on the global economy.
McKinsey estimated a total AI economic impact of $17.1 – $25.6 trillion, ~35-70% incremental economic impact based on AI worker productivity enabled by generative AI, including use cases.
(3/6)
What are the key components of the AI stack?
1) Training data collection and processing
To train and execute AI applications large datasets are required. Providing a too small dataset in the training phase of the AI algorithm can lead to low-quality outcome, erasing the value of the generated results. This need of enormous datasets shows the importance of third-party data providers as it would be highly inefficient to collect the data individually.
Unlike other threads put in as many hard numbers for these predictions to make them quantifiable.
Also tried to call out as many start-ups/hidden gems as possible. Most launching in Q1.
15 for 25 last year.
Can we do better this year? NFA
1. Privacy protocols are front and center. At leats one wallet integrates direct privacy features for sending transactions. I like @elusivprivacy
The debate then rages on for ZK, FHE and MPC and which cases are best for each.
2. BTC ETF (duh), ETH ETF, and one other altcoin ETF (likely SOL) are launched by the end of 2024.
We are drastically underestimating the flows not only from non-crypto holders (10% increase as noted below) but from institutional investors and 401k accounts. This leads to....…
.@Rocket_Pool is the best investment idea on the board atm imho (NFA, etc) . Why?
-Atlas upgrade (next wk) lowers threshold to run a node
-Accompanying expansion in rETH w/ more nodes
-Mechanical buy pressure on RPL (thin supply) by stakers who need to hold it
Let's dive in🧵
For Ethereum staking today there are a handful of major players with varying market shares: Lido (~31%) Coinbase (~12%), Rocketpool (~2%), Stakewise(<1%), and Frax (<1%).
Lido is #1 bc 1) were first to market 2) most integrated in Defi 3) have strong mkting/liq incentives 4) cheapest (10% of fees). These existing ad. for Lido come with a range of dis. the market has mostly looked through inc. its censorability due to a small # validators (~30)
How do you best manage a crypto portfolio? Using the data available + academic research:
-Whats the op. port mix?
-Whats the op. bench?
-Whats the best rebal sched?
-Best time to trade?
-Does tech analysis work?
Lets explore🧵
Starting with BTC/ETH.
BTC/ETH have provided empirical risk-adjusted benefits to a traditional portfolio (60% stocks / 40% bonds), despite the volatility and downside risks.
~10% outperformance for basically no vol jump.
This period captures 2018/2020/2022. Didnt matter.
Beyond simple weightings of BTC and ETH the optimal portfolio utilizing data from the past 5 years would have been:
27% ETH
62% bonds
4% BTC
7% stocks